Texas

Commerce Clause Challenge to Transmission LawNextEra v. Paxton, et al.,
Most Recent Development:Complaint filed on June 17, 2019 in U.S. District CourtCase Documents

Case Summary
NextEra’s complaint, filed in U.S. District Court for the Western District of Texas, alleges that recently enacted amendments to the state’s public utility laws violate the dormant Commerce Clause and “substantially impair” the company’s “contractual right” to build a new line in East Texas. NextEra alleges that Texas law “ousts” the company “from acquiring further business or developing and constructing new transmission projects in Texas” by reserving the transmission market for utilities that already own transmission and distribution facilities in the state.

SB 1938, signed into law in May 2019, restricts the Public Utility Commission’s authority to grant Certificates of Public Convenience and Necessity (CPCN). Previously, the law allowed the PUC to grant a CPCN to an “electric utility or other person.” SB 1938 deletes “or other person,” and specifies that the PUC may grant a CPCN for a transmission line only to the owner of the existing facility that interconnects to the new line. The law also limits utility transfers of CPCNs.

These amendments, according to NextEra, “benefit a defined few utilities that already own transmission and distribution facilities in Texas, and block other entities, including new entrants, and out-of-state developers that otherwise could qualify as public utilities under Texas law, from developing or acquiring transmission facilities.” Because the law is “meant to reserve business opportunities . . . which used to be available to all businesses, only to existing electric utilities that currently own facilities in Texas,” NextEra argues that “a virtual per se rule of invalidity applies” under established dormant Commerce Clause precedent.

The court disagreed, concluding that the laws at issue in cases cited by NextEra were not “analogous” to the Texas Law. NextEra urged the court to invalidate Texas’s law based on dormant Commerce Clause cases “which involve the flow of goods in interstate commerce.” The ROFR law, according to the court “does not purport to regulate the transmission of electricity in interstate commerce; it regulates only the construction and operation of transmission lines and facilities within Texas.”

The Texas court also held that the law does not have a discriminatory purpose, rejecting NextEra’s claim that the Texas Legislature passed the law in reaction to the company winning a FERC-regulated process to build a transmission line in East Texas. Instead, the court found that the legislative history indicates that the Legislature “disagreed with the statutory analysis reflected in a 2017 PUCT declaratory order and enacted SB 1938 to eliminate any uncertainty in Texas law.” The ROFR law, according to the court, merely “continues the long-term practice in Texas of allowing existing providers to build needed new transmission lines.”

Following the lead of a federal court in Minnesota that dismissed Commerce Clause claims about a similar Minnesota law, the district court found two additional reasons for rejecting NextEra’s arguments. First, the law does not discriminate against out-of-state entities in-part because many utilities that benefit from the law are headquartered in other states. Second, under the Supreme Court’s 1997 decision in Tracy the state is “entitled to consider the effect on consumers.” In Tracy, the Supreme Court was reluctant to second-guess the state’s differential treatment of utilities and interstate gas marketers “lest [it] imperil the delivery” of gas to captive ratepayers. The Texas court expressed similar concerns that competition in transmission development might jeopardize reliability.

Finally, the court also dismissed NextEra’s Contracts Clause claim tied to its agreement with the Regional Transmission Organization (RTO) that awarded the company the right to build the East Texas project.